How should I determine pricing for my products?

Should you just add a percentage to your cost of goods or should you individually price your items?

In my personal opinion, it is a mistake to simply price items based on a percentage applied to a cost of goods. This practice sometimes results in items being overpriced and non-competitive when compared to similar items and it also results in many items being underpriced when compared to what the market will allow. This is called leaving the money on the table in retailing circles and cuts into your profit margins.

The psyche of the consumer is a complicated machine. Many people have a very good idea of what pricing is competitive, what items are underpriced, and what items are overpriced. These are the market basket shoppers. The market basket is not always similar from one consumer to another but based on an industry, the items in an average market basket tend to be remarkably similar among most consumers. These are the items that you must always price competitively. Even if a consumer is not buying an item in his market basket, if your price is too high it reflects badly on a store’s price image.

My advice is to become an expert in your chosen product category for the items you sell. Price your items to the level the market will bear. Overall, you will make more profit in the long run, be more competitive, and not leave too much money on the table for your competitors to snatch up. It is more work to price to the market, but if done properly, the results more than make up for the extra effort.

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